What is e-trading? What you need to know to get started

What is e-trading? As more and more things become automated and artificial intelligence is taking over, the stock market is also changing with the times. Now each decision can be made in a matter of seconds, virtually… But do you know how? E-trading is an example of how combining expertise in statistics, technology and programming make investing more accessible. If you are thinking of investing in the stock market, here’s what you need to know about e-trading!

What is e-trading?

E-trading offers useful and easy-to-use tools, even for less experienced investors. These require creating a brokerage account that is linked with your bank account so you can make transfers. In essence, it is a computerized system that performs numerous trades every minute, each of which is closely watched by investors, regulators and market makers alike.

How do you open an e-trading account?

The first step will be to open an account with a brokerage firm which may offer the services of an experienced broker on a part-time basis, at a discount. You can also opt to carry out all trades independently. Generally, this process is done online, although you can send all the necessary documentation (name, address, previous experience in brokerage) to formalize the opening of the account via mail.

Choosing a type of e-trading account

The type of account that you open will depend on several factors, including your investing experience and your short- and long-term goals. The task of the advisors at the selected firm will be to align your needs with the type of account you wish to open. These can include: day trading, position trading, swing trading and scalping.

Types of e-trading

There are four main types of e-trading: Day Trading, Position Trading, Swing Trading and Scalping. The first is based on a strategy of buying and selling securities on the same day. The second type of e-trading consists of carrying out the operations but maintaining the values for weeks, and even months. For its part, Swing Trading is based on the price fluctuations that the securities have in one day. Finally, Scalping occurs when investors generate profits by selling at a price greater than the spread or purchase price of the security.

Advantages

The advantage of e-trading is that it offers easy-to-use tools, even for investors who do not have extensive experience in the stock market, since it is usual for the different apps to have customer service that can help you with any issues. In addition, you will have confidence that the app is able to carry out all the operations that you wants in a safe way. Other advantages include, in some cases, commission-free trades and even operations with listed funds.

Security

On the one hand, it can be said that e-trading operations are safe, since they are protected and stored by the Depositary Trust Company, whose task is to keep a record of all financial transactions carried out by US shareholders. However, you must always keep in mind that there are associated risks that have to do with identity theft and the sale of data to third parties through malicious software. In this sense, it is not enough to maintain a “secure” password. It is the shareholder’s responsibility to protect their data with special apps and with MFA, or multi-factor authentication.

Risks

Perhaps one of the main risks of e-trading is the theft of data for sale in the dark web or the unauthorized use of credentials to carry out non-accredited operations that put the investor’s capital at risk. Likewise, one of the risks, mainly for novice investors, is that of terms and conditions that include sudden variations, or a total exoneration of responsibility on the part of the company.

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